Sharing of office premises among the concerns is permissible when only one concern claims the deduction

ITO Vs M/s Dresdner Kleinwort Wasserstein Sec (I) Ltd. (ITAT Mumbai)– Assessee has incurred an expenditure towards the service charges of the shared premises to its group concern which has taken the same on leave and license. As per leave and license agreement, the sharing of the premises with group concern is allowed as contemplated in clause 11 of the agreement.

The intention of the sharing the premises exists right from the beginning as evident from the agreement of leave and license. Even otherwise when the expenditure is claimed by one of the either parties, there is no double deduction then it has no revenue effect if the expenditure is allowed in the hands of the assessee instead of other group concern M/s Dresdner Bank AG. When the CIT(A) has accepted the contentions of the assessee and allowed the expenditure from the date of the occupation of the premises, we do not find any reason for disallowance of the claim of the assessee for intervening period from taking the premises on leave and license till shifting of the assessee from the existing office to the new premises. In the totality of the circumstances, we are of the view that the assessee’s claim is justified and proper and liable to be allowed. Accordingly, we allow full claim of the assessee in respect of the service charges, society charges and brokerage charges when the premises was meant tobe shared by group concern of the assessee as evident from the agreement of leave and license. Accordingly, we allow the grounds of appeal no.2 and 3 of assessee’s appeal.

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES, ‘H’, MUMBAI

BEFORE SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER
AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER

ITA No. 2685/Mum/2005

(Assessment year -2001 -02)

Income Tax Officer Vs M/s Dresdner Kleinwort Wasserstein Sec.(I)Ltd.

ITA No. 3558/Mum/2005

(Assessment year -2001 -02)

M/s Dresdner Kleinwort Wasserstein Sec.(I)Ltd.  V/s Income Tax Officer

ITA No. 6950/Mum/2005
(Assessment year -2002-03)

ACIT V/s Dresdner Kleinwort Wasserstein Sec.(I)Ltd,

O R D E R

PER VIJAY PAL RAO

Appeal bearing ITA No. 2685/Mum/2005 and ITA No. 3558/Mum/2005 are cross-appeals and directed against the order dated 31 .01 .2005 for the Assessment year -2001-02 and ITA No. 6950/Mum/2005 for the assessment year 2002- 03 is directed against the order dated 14.09.2005. Since these appeals pertain to the same assessee, therefore, for the sake of conveyance, these appeals were heard together and are being decided by this consolidated order.

ITA No. 3558/Mum/2005 (By assessee)

2. The   assessee has raised following grounds in this appeal:

“1. On the facts and the circumstances of the case and in law the CIT(A) erred in confirming the dis-allowance of Rs. 69,56,529/- on account of debts written off as irrecoverable”

2. On the facts and the circumstances of the case and in law the CIT(A) erred in confirming the disallowance on account of rent paid by the appellant to Dresdner Bank AG, to the extent of rs.22,85, 162, on the ground that the same pertains to the period when the premises were not occupied by the appellant;

3. On the facts and the circumstances of the case and in law the CIT(A) erred in enhancing the assessment and making an addition of Rs. 11, 14,392 on account of society charges and brokerage paid to Dresdner Bank AG, on the ground that the same pertain to the period when the premises were not occupied by the appellant.”

2.1 The first grounds of appeal is regarding bad debts written off amounting to Rs.69,56,529/-. The AO disallowed the claim of the assessee on the ground that the assessee does not fulfill the conditions laid down u/s 36(2)(i) because such debts are not recorded in the profit and loss account in the name of the share broker.

2.2 On appeal, the CIT(A) confirmed the disallowance made by the AO.

2.3 We have heard the learned AR and ld. DR as well as considered the relevant record. At the outset, we note that when the assessee has earned the brokerage on the transactions of purchase and sale of shares on behalf of the clients against the purchase of shares, then if the amount becomes bad on account of not recoverable from purchase of shares on behalf of the client is allowable in view of the decision of the Special Bench of this tribunal in the case of DCIT V/s Shreyas S Morakhia reported in 131 TTJ 641, wherein the Special Bench vide paragraphs 32 has held as under :

“32. Keeping in view all the facts of the case and the legal position emanating from the various judicial pronouncements as discussed above, we are of the view that the amount receivable by the assessee, who is a share broker, from his clients against the transactions of purchase of shares on their behalf constitutes debt which is a trading debt. The brokerage/ commission income arising from such transactions very much forms part of the said debt and when the amount of such brokerage/ commission has been taken into account in computation of income of the assessee of the relevant previous year or any earlier year, it satisfied the conditions stipulates in s 36(2)(i) and, the assessee is entitled to deduction u/s 36(1)(vii) by way of bad debts after having written off the said debts from his books of accounts as irrecoverable. We therefore, answer the question referred to this Special Bench in the affirmative that is in favour of the assessee”

 2.4 Moreover, in view of the decision of the Hoh. Supreme Court in the case of T.R.F. LTD. Vs. C.I.T. reported in (2010) 323 ITR 397 (SC), it is not necessary for the assesses to establish that the debt, in fact, has become bad and irrecoverable. It is enough if the bad debts are written off as irrecoverable in the accounts of assesses. In view of the decision of the Special Bench as well as the decision of the Hon. Supreme Court cited above, we decide this issue in favour of the assessee.

2.5 Grounds of appeal no. 1 is allowed

3. Grounds of appeal no. 2 and 3 are regarding dis-allowance on account of rent paid by the appellant to Dresdner Bank AG,to the extent of Rs. 22,85,162 and enhancement of enhancing the assessment by CIT(A) making an addition of Rs.11,14,392 on account of society charges and brokerage paid to Dresdner Bank AG.

3.1 Facts relating to this issue are that the assessee is sharing an office of M/s Dresdner Bank AG and has paid Rs. 86,54,588/- as compensation for sharing office premises. The AO disallowed the claim of expenditure on the ground that the assessee failed to provide any concrete evidence or agreement of sharing of the office premises.

3.1 On appeal, the CIT(A) held that the assessee is in possession of office at 16^th and 17 th floor, Hoechst House, Nariman Point, Mumbai and during the relevant previous year the assessee has shared the above office with M/s Kleinwart Benson ltd. The assessee has actually occupied the offices at two floors during the months of April and September, 2000 respectively. Accordingly, the CIT (A) has restricted the dis-allowance from July to September 2000 for the office premises situated at 16 and 17^th, Hoechst House, Nariman Point, Mumbai. It was further held that the AO has not considered the proportionate society charges and brokerage charges for hiring the premises prior to September 2000. Accordingly the notice u/s 251 (1 (2)was given to the assessee for enhancement of the assessment on account of the society charges of Rs. 4,56,804/-, and brokerage charges of Rs. 6,57,588 and disallowed the same. .

3.2 Both the assessee as well as the revenue have challenged the order of the CIT(A). The assessee is aggrieved to the extent of dis-allowance confirmed for the period prior to September 2000 on account of service charges paid as well as the enhancement made on account of the society charges and brokerage paid by the assessee. Whereas, the revenue is aggrieved by the deletion of the addition regarding the rent and service charges paid by the assessee towards the sharing of the office premises from the month of September 2000 on wards.

3.3 Before us, the learned AR submitted that the M/s Dresdner Bank AG has taken the premises for office on leave and license at 16^th and 17 th floor, Hoechst House, Nariman Point, Mumbai. As per leave and license agreement the bank was allowed to share office premises with its group concerns. The said premises was shared with M/s Kleinwart Benson ltd. a sister concern of the assessee. He has further submitted that the assessee shared the said premises with other concern which was taken on leave and license and shifted to the same after some time. Even otherwise shifting of the office from one place to another place take some time, therefore, the assessee occupied the premises in the month of September 2000. However, the liability of payment of service charges, society charges and brokerage expenses accrued to the society from the date of taking the premises on leave and license basis. He has further submitted that when these expenses are not bogus and group concern has not claimed the same, therefore, there will be no revenue effect if the assessee has claimed these expenses in stead of group concern of the assessee M/s Dresdner Bank AG.

3.4 On the other hand, the learned DR has submitted that when the assessee has not utilised the services for the purposes of the business, the expenditure incurred during that period cannot be allowed as business expenditure. He has pointed out that the CIT(A) has reproduced the break up of the expenditure month-wise at page 7 of the impugned order. Therefore, as per the break up of the expenditure up to the month of September 2000 in which the assessee has occupied the premises cannot be claimed as expenditure for the purpose of business because the premises was not used by the assessee.  In the absence of any written agreement, there is no connection of liability of the assessee towards the expenditure  prior to the occupation of the premises. Accordingly, the dis-allowance made by the AO is justified. The ld. DR relied upon the order of the AO.

3.5 We have considered the rival contentions and relevant record. It is undisputed fact that the assessee has incurred an expenditure towards the service charges of the shared premises to its group concern which has taken the same on leave and license. As per leave and license agreement, the sharing of the premises with group concern is allowed as contemplated in clause 11 of the agreement. The intention of the sharing the premises exists right from the beginning as evident from the agreement of leave and license. Even otherwise when the expenditure is claimed by one of the either parties, there is no double deduction then it has no revenue effect if the expenditure is allowed in the hands of the assessee instead of other group concern M/s Dresdner Bank AG. When the CIT(A) has accepted the contentions of the assessee and allowed the expenditure from the date of the occupation of the premises, we do not find any reason for dis-allowance of the claim of the assessee for intervening period from taking the premises on leave and license till shifting of the assessee from the existing office to the new premises. In the totality of the circumstances, we are of the view that the assessee’s claim is justified and proper and liable to be allowed. Accordingly, we allow full claim of the assessee in respect of the service charges, society charges and brokerage charges when the premises was meant tobe shared by group concern of the assessee as evident from the agreement of leave and license. Accordingly, we allow the grounds of appeal no.2 and 3 of assessee’s appeal.

3.6 Grounds of appeal no. 2 and 3 are allowed.

ITA No. 2685/Mum/2005 (By revenue)

4. Only ground raised by the revenue in this appeal reads as under :

“On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in giving a relief of Rs. 52,55,034/- to the aseseee on account of shared service cost”

“On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made in respect of rent amounting to Rs. 36,39,670/- included the shared service cost without appreciating that there was no rent agreement in respect of the rent shown as payable by the assessee”